Schroder Managed Balanced: November 2021 update

• The fund taps into the expertise of several experienced managers
• It provides a high level of diversification in one convenient investment
• It's performed much better than its peers over the long run
• This fund is on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Schroder Managed Balanced fund mainly invests in funds run by other managers at Schroders and provides exposure to a broad range of assets including global shares and bonds. We think this fund could form the core of a broader portfolio aiming to deliver long-term growth, or add some stability to a portfolio mostly invested in shares.

Manager

This fund is managed with a team-based approach, with Johanna Kyrklund and Remi Olu-Pitan serving as lead managers.

Kyrklund is Chief Investment Officer and leads Schroders' Multi-Asset Investments division. She joined the company in 2007 and has specialised in asset allocation strategies throughout her career. Olu-Pitan started her career in 2006 when she joined Schroders. She's quickly risen up the ranks and now serves as fund manager on this fund, and a small number of other ones. In practice, Olu-Pitan handles the day-to-day management of the fund, and Kyrklund helps with asset allocation to balance with her other commitments. We were pleased to see Kyrklund recently reduce her people management responsibilities, allowing her to focus more of her time on investing.

We have met both managers on numerous occasions over the years and believe they are dedicated individuals who are passionate about what they do. They also benefit from the support of an investment team we believe is one of the best resourced in the industry.

Process

This is a 'fund of funds'. The managers primarily invest in funds run by other talented Schroders fund managers, such as Martin Skanberg, although they can also invest outside of the Schroders range where necessary. Collectively those managers invest in hundreds of different companies and bonds. This means the portfolio offers plenty of diversification.

Kyrklund heads Schroders' highly experienced Asset Allocation team. They meet regularly to decide how much to invest in different areas and assets. In forming their views, the Asset Allocation team leverage analysis and insight from a number of specialist in-house teams.

They tend to favour shares when the economic environment is positive. But in times of stress, they shift to more diversified assets, such as bonds and cash, aiming to minimise losses.

Once the Asset Allocation team has recommended where and how much to invest, the managers seek to identify several different funds that reflect those views. Every fund must be expected to enhance returns or reduce risk to justify its place in the portfolio.

Over the past year the managers have maintained a similar proportion of the fund invested in shares, but have altered where this is invested, reducing the amount invested in the US and increasing the allocation to the UK. Thematic equity funds, such as Schroder Global Sustainable Growth and Schroder Global Energy Transition have also been added to the portfolio. The managers like their sustainability profile as well as the style diversification they add to the portfolio.

The managers have made a significant reduction to bonds over the past 18 months. During the depths of the coronavirus crisis last year the managers added exposure to bonds, which tend to provide some shelter during periods of uncertainty. As markets recovered they reduced bonds and added to shares. Over the past 12 months, the managers have continued reducing the allocation to bonds, particularly government bonds which they view as unattractive.

Some of the money taken out of bonds has been allocated to alternatives, which can provide different sources of returns for the portfolio. Examples include Schroder AS Commodity Fund, which invests in commodity related investments including energy, base metals and soft commodities futures. The managers think that the global economic cycle is in an expansion phase, in which commodities should do well. They also think commodities offer an effective inflation hedge.

Other types of alternatives, such as Schroder ISF Emerging Multi-Asset Income, aim to provide additional sources of income for the portfolio.

Please note that the managers' freedom to invest in high yield bonds and derivatives adds risk.

Culture

Schroders is a multinational asset management company that employs hundreds of investment professionals across the globe. The managers of this fund can tap into that experience and local knowledge to help them make investment decisions. Schroders is home to many high calibre fund managers so Kyrklund and Olu-Pitan have plenty of good funds to choose from.

The lead managers have both remained loyal to the company for well over a decade, and the broader team has remained stable too. They're all incentivised in a way we think aligns their interests with those of long-term investors.

Schroders recognises the importance of integrating environmental, social and governance (ESG) considerations into their research and investment decisions.

The managers take account of ESG factors throughout the investment process. They can also monitor the ESG characteristics of the overall portfolio, using a proprietary model to quantify each investment’s positive and negative impact on people and the planet.

All of the funds held in the portfolio integrate ESG analysis, and some are managed with sustainable objectives in mind. The Schroders Sustainability Team runs an ESG accreditation scheme that requires each investment team to evidence both the rigour of their ESG analysis, and the impact this work has on their portfolios.

Cost

This fund is available at an annual ongoing fund charge of 0.33%, after a 0.27% discount available through the HL platform. Before the discount the charge is 0.60%. We think the fund is attractively priced compared to its peers in the IA Mixed Investment 40-85% Shares sector. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

The managers aim to deliver performance that doesn’t stray too far from the broader IA Mixed Investment 40-85% Shares sector. Overall, the fund's done a good job of outperforming the sector since launch in 2007. There are no guarantees that this will continue though, and there have been periods where performance has varied significantly from the benchmark.

The fund also beat its peers in the IA Mixed Investment 40-85% Shares sector over the past year. Exposure to UK shares provided the biggest boost, and US and global shares did well too. Fixed income and alternative investments each made a more modest contribution. Past performance is not a guide to the future.

Past performance is not a guide to the future. Source: Lipper IM to 31/10/2021.

Find out more about the Schroder Managed Balanced fund, including charges

Schroder Managed Balanced Key investor information